Question 1

Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P) = 600.Should Y rise to 4,200,the same quantity of real money balances

Accepted Answer

A)  will not be demanded under any conditions.
B)  will be demanded again provided the interest rate does not change.
C)  will be demanded again provided the interest rate rises by a certain amount.
D)  will be demanded again provided the interest rate falls by a certain amount.E) B) and C)
F) None of the above

Question 2

Figure 4-6
 
-In Figure 4-6 above,with IS₀ shifting to IS₁ against the upward-sloping LM curve,crowding-out is the result that

Accepted Answer

A)  income stays at YO₃.
B)  income rises to Y₁ instead of to Y₂.
C)  income rises to Y₁ instead of staying at YO₃.
D)  income rises to Y₂ instead of to Y₁.E) A) and B)
F) C) and D)

Question 3

At all points below the current LM curve,

Accepted Answer

A)  the supply of output exceeds output demand.
B)  the supply of output falls short of output demand.
C)  the supply of money falls short of money demand.
D)  the supply of money exceeds money demand.E) A) and C)
F) A) and D)

Question 4

The Chapter 3 multiplier,because it assumes an ________ interest rate,is usually an ________ of the fiscal policy multiplier in the IS-LM model.

Accepted Answer

A)  endogenous,underestimate
B)  endogenous,overestimate
C)  exogenous,underestimate
D)  exogenous,overestimateE) All of the above
F) B) and C)

Question 5

The "crowding-out" effect refers to the fact that

Accepted Answer

A)  fiscal policy cannot be used to shift the IS curve.
B)  rising interest rates tend to accompany an expansionary fiscal policy.
C)  there may be a liquidity trap.
D)  All of these.E) A) and C)
F) A) and D)

Question 6

From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have

Accepted Answer

A)  higher income and a lower interest rate.
B)  higher income and an unchanged interest rate.
C)  an unchanged income and a lower interest rate.
D)  lower income and an unchanged interest rate.
E)  an unchanged income and a higher interest rate.F) None of the above
G) A) and C)

Question 7

The "velocity" of money is

Accepted Answer

A)  the ratio of real GDP to the real money supply.
B)  the real money supply divided by the real GDP.
C)  the money supply divided by the price level.
D)  the money supply multiplied by the price level.E) All of the above
F) C) and D)

Question 8

An increase in transfer payments would have the same short run effect on the government deficit as an equal

Accepted Answer

A)  increase in government expenditures.
B)  reduction in taxes.
C)  increase in taxes.
D)  Both A and B.E) None of the above
F) B) and C)

Question 9

"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium,thus ________ planned private investment.

Accepted Answer

A)  rise,keep constant,lowering
B)  rise,raise,lowering
C)  rise,lower,raising
D)  fall,keep constant,raising
E)  fall,raise,loweringF) A) and B)
G) A) and C)

Question 10

The fiscal-policy multiplier will be greater

Accepted Answer

A)  the greater is the interest responsiveness of the demand for money.
B)  the smaller is the interest responsiveness of autonomous expenditures.
C)  the smaller is the income responsiveness of the demand for money.
D)  All of the above tend to make the fiscal-policy multiplier greater.E) A) and B)
F) B) and D)

Question 11

"Real money balances" refers to

Accepted Answer

A)  the currency part of the total money supply.
B)  the money supply divided by the price level.
C)  the money supply times one minus the interest rate.
D)  the non-interest-earning part of the money supply.E) All of the above
F) None of the above

Question 12

The practice of "monetizing the debt" is traditionally feared because it is thought to cause

Accepted Answer

A)  unemployment.
B)  inflation.
C)  a falling price level.
D)  a liquidity trap.E) B) and C)
F) A) and C)

Question 13

Money is assumed to earn

Accepted Answer

A)  no interest at all,being just currency in hand.
B)  in checkable deposit form a rate below "the interest rate."
C)  in checkable deposit form a rate equal to "the interest rate."
D)  in checkable deposit form a rate above "the interest rate."E) All of the above
F) C) and D)

Question 14

Figure 4-5
 
-In Figure 4-5 above,the money market is in equilibrium

Accepted Answer

A)  at points B,C,and E.
B)  at points A and E.
C)  only at point E.
D)  at points E and D.
E)  at points A,B,E,and C.F) C) and D)
G) A) and E)

Question 15

During the recession phase of the business cycle,households become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Mortgage lending could be expected to

Accepted Answer

A)  rise if the change in future earnings is thought to be greater than the change in interest payments.
B)  stay the same.
C)  fall.
D)  fall if the change in future earnings is thought to be greater than the change in interest payments.E) A) and C)
F) A) and B)

Question 16

Suppose that banks pay 4 percent interest on checking accounts while U.S.Savings Bonds pay 6 percent interest.Under these conditions

Accepted Answer

A)  no nonmonetary assets are willingly held.
B)  a combination of money and nonmonetary assets are willingly held.
C)  no money balances are willingly held.
D)  we do not have sufficient information to tell whether or not any money balances are willingly held.E) B) and D)
F) A) and B)

Question 17

When the demand for money depends only on real income,the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.

Accepted Answer

A)  vertical,very strong
B)  vertical,zero
C)  horizontal,very strong
D)  horizontal,zeroE) A) and D)
F) B) and C)

Question 18

Monetary policy will have a large income effect provided the

Accepted Answer

A)  IS curve is flat.
B)  LM curve is steep.
C)  IS curve is steep.
D)  LM curve is flat.E) All of the above
F) C) and D)

Question 19

Figure 4-1
 
-Employing Figure 4-1 above,if Y increases by 3000 and the interest rate is fixed at 5% then the sensitivity of real money balances to changes in real income is

Accepted Answer

A)  0.67.
B)  0.33.
C)  -0.67.
D)  -0.33.E) All of the above
F) C) and D)

Question 20

If spending is NOT responsive to changes in the interest rate,then

Accepted Answer

A)  the Fed is "impotent."
B)  tax policy is "impotent."
C)  fiscal policy is "impotent."
D)  the Fed is "potent."E) C) and D)
F) A) and D)

Exam 4: Strong and Weak Policy Effects in the Is-Lm Model

The Chapter 3 multiplier,because it assumes an ________ interest rate,is usually an ________ of the fiscal policy multiplier in the IS-LM model.

Correct AnswerverifiedShow Answer

Monetary policy will have a large income effect provided the

Correct AnswerverifiedShow Answer

"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium,thus ________ planned private investment.

Correct AnswerverifiedShow Answer

If spending is NOT responsive to changes in the interest rate,then

Correct AnswerverifiedShow Answer

From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have

Correct AnswerverifiedShow Answer

Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁ against the upward-sloping LM curve,crowding-out is the result that

Correct AnswerverifiedShow Answer

Money is assumed to earn

Correct AnswerverifiedShow Answer

Suppose that banks pay 4 percent interest on checking accounts while U.S.Savings Bonds pay 6 percent interest.Under these conditions

Correct AnswerverifiedShow Answer

An increase in transfer payments would have the same short run effect on the government deficit as an equal

Correct AnswerverifiedShow Answer

The "crowding-out" effect refers to the fact that

Correct AnswerverifiedShow Answer

"Real money balances" refers to

Correct AnswerverifiedShow Answer

Figure 4-1 -Employing Figure 4-1 above,if Y increases by 3000 and the interest rate is fixed at 5% then the sensitivity of real money balances to changes in real income is

Correct AnswerverifiedShow Answer

During the recession phase of the business cycle,households become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Mortgage lending could be expected to

Correct AnswerverifiedShow Answer

The fiscal-policy multiplier will be greater

Correct AnswerverifiedShow Answer

When the demand for money depends only on real income,the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.

Correct AnswerverifiedShow Answer

At all points below the current LM curve,

Correct AnswerverifiedShow Answer

The "velocity" of money is

Correct AnswerverifiedShow Answer

Figure 4-5 -In Figure 4-5 above,the money market is in equilibrium

Correct AnswerverifiedShow Answer

Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P) = 600.Should Y rise to 4,200,the same quantity of real money balances

Correct AnswerverifiedShow Answer

The practice of "monetizing the debt" is traditionally feared because it is thought to cause

Correct AnswerverifiedShow Answer

The Chapter 3 multiplier,because it assumes an interest rate,is usually an of the fiscal policy multiplier in the IS-LM model.

Correct Answer
verified

Correct Answer
verified

"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium,thus planned private investment.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the demand for money depends only on real income,the resulting LM curve causes fiscal policy to have a effect on income.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified